Wednesday, December 30, 2009

When India Inc had a rough Raj in UK

S Kalyana Ramanathan / London December 31, 2009

Even before 2009 started, all initial indicators suggested that India Inc’s year in the UK would be that of the Tatas. The close of the year simply confirmed this with plenty of interesting developments leading to that foregone conclusion.

Tata’s daring double acquisition — first steel maker Corus in 2007 and later luxury car marquees Jaguar and Land Rover in 2008 — provided the perfect background for 2009 to unfold and become the year when the name Tata would be the most spoken about Indian business group in the UK.

The year started with some bad news coming from two of Tata’s most prominent investments. In January, Corus said the total job loss in its European operations would be close to 3,500 — 1,100 in South Wales, 1,400 in the United Kingdom and another 1,000 in Holland.

Corus had already embarked on a major restructuring exercise to mitigate the impact of the worst global recession since 1930. A major body blow for UK’s largest steel maker came bang in the middle of the year, when a consortium of four steel buyers for Corus withdrew half-way from a 10-year contract, forcing Corus to announce plans to mothball (temporarily close) some of its major works in the north-east.

This decision, expected to be implemented in January 2010, would lead to 1,700 job losses in the region in Corus alone and another estimated 1,300-1,500 jobs in dependent sub-contractors’ plants. Unofficial estimates from the unions suggest this number could bulge by another three times at least. Despite the problems on the ground, Tata decided to dig its heel deeper into Corus by announcing plans to drop the 12-year brand name with a massive re-branding exercise that should unfold by the summer of 2010.

The situation for Jaguar Land Rover (JLR) was a shade better than that at Corus. Despite announcing voluntary redundancies of around 2,000 jobs, the car maker put in motion a new business plan and managed to get the approval for a £340-million (nearly Rs 2,527-crore) loan from the European Investment Bank (EIB) to develop eco-friendly cars. This loan came with a caveat that it would need the UK government’s guarantee.

Among other conditions, the UK government demanded a board berth, forcing JLR to turn down the government’s support. The company, however, went on to raise twice the value of the EIB loan from other banking sources in the UK and in India.

Almost right through 2009, the global demand for luxury cars remained sluggish. In June, Tata Motors (the owner of JLR) said a severe erosion in demand for premium and luxury cars impacted the business of JLR, which posted a loss of Rs 2,400 crore for the 10 months starting June 2008, when it was acquired by Tata. JLR was strongly profitable (Rs 4,770-crore net) in the 18 months to May 31, 2008, when it was owned by Ford Motor Company of the US.

The year was not entirely bad for JLR. In February, it got a £600-million (Rs 4,460-crore) order for supplying 13,000 cars to Chinese buyers over the next three years.

Despite cutting production by nearly 100,000 units over the year, recovery was in sight towards the end of the year. JLR reported a 30 per cent jump in sales (nearly 19,000 units) in November, giving some hope that 2010 might be a better year for JLR.

Vedanta’s troublesWhile the Tata Group was managing its problem-ridden acquisition in the UK from Bombay House, the UK-based metals major Vedanta Group (founded by Anil Agarwal) ran into rough weather in Orissa.

The bauxite mining project (to extract aluminium) in Orissa came under fire in the UK with human rights campaigners claiming that the $8-billion (Rs 37,4165-crore) group was trampling over the fundamental rights of the Dongria Kondh community in the Niyamgiri hills of Kalahandi district, which is considered holy by the community.

Questions were raised about the Church of England’s investment in the company and a high decibel campaign was run outside the venue where the company held its annual general meeting in July.

In October, the UK National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises said that Vedanta had failed to engage the Dongria Kondh in adequate and timely consultations on the construction of the mine and it did not consider the impact of the construction of the mine on the rights and freedom of the community, or balance the impact against the need to promote the success of the company.

Of business and politicsVedanta was not the only group under severe media scrutiny in the UK. Lord Swraj Paul-controlled Caparo Group took a severe beating to its topline due to falling steel prices and global recession. The group’s topline dropped by nearly a third to £650 million (Rs 4,836 crore) in 2009 from £950 million (Rs 7,067 crore) in 2008.

With a greater focus on Indian customers in the next two to three years, the group’s CEO Angad Paul said that growth numbers would be reinstated from 2010, while he projected the overall turnover to cross £1.2 billion (nearly Rs 9,000 crore) by 2011.

While his business took a beating in 2009, Lord Paul was caught in an MP expenses scandal with sections of local media accusing him of breaking rules to claim expenses as a member of the House of Lords. Paul later denied these charges and invited an inquiry into his claims.

India-UK diplomatic relations received a major boost when President Pratibha Patil undertook a three-day visit to the UK, the first state visit by the President of India to the country in nearly two decades.

With rising unemployment numbers in the UK inching closer to 2.5 million by last count and with an eye on the next general elections set to be held by mid-2010, both the ruling Labour and Conservatives on the opposition were forced to promise tighter rules to tackle immigration.

Britain’s shadow home secretary Chris Grayling, during the party’s annual conference in Manchester in October, said his Conservative Party will, if it comes to power, introduce a ceiling on immigration to check the “gaping hole” in policy. He said, should the conservatives be elected to form the next government, measures will be introduced to check the “rampant abuse” of students’ visas.

This was later followed by a statement from UK’s Prime Minister Gordon Brown who said his government will seek to tighten rules, while he assured that his government’s new points-based system was very effective in keeping a check on immigration.

While it is not yet clear if the UK will be out of the recession in 2010, plenty of action is definitely in store. The most awaited development would, of course, be the results of the General Elections that would define the next government’s policy, not just on immigration but also those that would affect businesses.

Rising interests of India Inc in the UK, will make it a closely-watched election by Indian business groups, next in line only to a similar jamboree India witnesses every five years.